[R-SIG-Finance] corrections vs drawdowns

Mon Apr 1 18:09:09 CEST 2019

Brian,
I added references for 'forecast' and 'rugarch'. As for my script, It's a 'spagetti' without comments, which I can share privately.

Best, Alec

________________________________
From: Brian G. Peterson <brian using braverock.com>
Sent: Monday, April 1, 2019 11:38 AM
To: Alec Schmidt; r-sig-finance using r-project.org
Subject: Re: [R-SIG-Finance] corrections vs drawdowns

Alec,

Very interesting paper. Thanks for sharing the results of your thoughts on this topic.

I note that you reference 'forecast' and 'rugarch' but do not place them in your references. They should appear in your bibliography. Also, it would be good if you could post the R code somewhere so that an interested reader could replicate your analysis.

Regards,

Brian

--
Brian G. Peterson
http://braverock.com/brian/
Ph: 773-459-4973
IM: bgpbraverock

On Mon, 2019-04-01 at 13:39 +0000, Alec Schmidt wrote:
Here is my piece about US equity market corrections:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3362361<https://nam02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fpapers.ssrn.com%2Fsol3%2Fpapers.cfm%3Fabstract_id%3D3362361&data=02%7C01%7Caschmid1%40stevens.edu%7C724de3b1f0d74e20969b08d6b6b822e0%7C8d1a69ec03b54345ae21dad112f5fb4f%7C0%7C0%7C636897299336532452&sdata=6E9xHES3OPtu4%2BKoj56BMcxjFPqNUynepNMPam861%2Fc%3D&reserved=0>

I'll greatly appreciate your comments.

Alec

________________________________
From: Brian G. Peterson <brian using braverock.com>
Sent: Tuesday, January 8, 2019 11:55 AM
To: Alec Schmidt; r-sig-finance using r-project.org
Subject: Re: [R-SIG-Finance] corrections vs drawdowns

I think that this is correct.  NASDAQ was still in a drawdown.  NASDAQ
didn't make new all-time highs until 2014.

Some people define 'corrections' as drawdown from most recent peak.
Charles Schwab's definition is in-line with generally accepted usage:

https://na01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.schwab.com%2Fresource-center%2Finsights%2Fcontent%2Fmarket-correcti&data=02%7C01%7Caschmid1%40stevens.edu%7C104e1f582d6242bfce0208d6758a227a%7C8d1a69ec03b54345ae21dad112f5fb4f%7C0%7C0%7C636825633496698033&sdata=rkHsOOY4EdLB9LUu4bomU4%2F98T3kHidzSJY%2BGEQ4NsI%3D&reserved=0<https://nam02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.schwab.com%2Fresource-center%2Finsights%2Fcontent%2Fmarket-correcti&data=02%7C01%7Caschmid1%40stevens.edu%7C724de3b1f0d74e20969b08d6b6b822e0%7C8d1a69ec03b54345ae21dad112f5fb4f%7C0%7C0%7C636897299336532452&sdata=rfrM9sNhMoHIou5oLjQjFxNpwvam9zPOTQ54O4Etzzk%3D&reserved=0>
on-what-does-it-mean

The Motley Fool uses a similar but not identical definition:

https://na01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.schwab.com%2Fresource-center%2Finsights%2Fcontent%2Fmarket-correcti&data=02%7C01%7Caschmid1%40stevens.edu%7C104e1f582d6242bfce0208d6758a227a%7C8d1a69ec03b54345ae21dad112f5fb4f%7C0%7C0%7C636825633496698033&sdata=rkHsOOY4EdLB9LUu4bomU4%2F98T3kHidzSJY%2BGEQ4NsI%3D&reserved=0<https://nam02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.schwab.com%2Fresource-center%2Finsights%2Fcontent%2Fmarket-correcti&data=02%7C01%7Caschmid1%40stevens.edu%7C724de3b1f0d74e20969b08d6b6b822e0%7C8d1a69ec03b54345ae21dad112f5fb4f%7C0%7C0%7C636897299336542460&sdata=Pl4LY4D%2BRCJUlpP8VJ6BkM5gR8kj3ksPdIdeu1L2Vfw%3D&reserved=0>
on-what-does-it-mean

quantmod has a 'findPeaks' function, but this is dependent on you
setting a threshold for what defines a peak.

A related Stack Overflow question may provide something in the
direction of what you're looking for to look at drawdown from a recent
peak.

https://na01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fstackoverflow.com%2Fquestions%2F14737899%2Fcalculate-cumulatve-growth&data=02%7C01%7Caschmid1%40stevens.edu%7C104e1f582d6242bfce0208d6758a227a%7C8d1a69ec03b54345ae21dad112f5fb4f%7C0%7C0%7C636825633496708038&sdata=R9gkq2ILuqhdJQpjyijXw%2Flmogrxto8WP%2BvV05K6lgo%3D&reserved=0<https://nam02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fstackoverflow.com%2Fquestions%2F14737899%2Fcalculate-cumulatve-growth&data=02%7C01%7Caschmid1%40stevens.edu%7C724de3b1f0d74e20969b08d6b6b822e0%7C8d1a69ec03b54345ae21dad112f5fb4f%7C0%7C0%7C636897299336552468&sdata=llnqD8ZdgOYjNxI9b8TLI1euc2TxZpiA3jQc%2FD9A2Vk%3D&reserved=0>
-drawdown-from-local-min-max

I would certainly be happy to include a 'findCorrections' function in a
later version of PerformanceAnalytics if we could parameterize what
constitutes a 'recent high' for that purpose.

Regards,

Brian

On Tue, 2019-01-08 at 16:36 +0000, Alec Schmidt wrote:
> Thank you Brian,
> geometric=FALSE gave me additional corrections in 2011 and 2012 but
> still no bear market of 2008:
>
>
>  08/30/2018 - 12/24/2018 (-11.04%) [80 Days]
> 07/21/2015 - 02/11/2016 (-10.05%) [143 Days]
> 09/17/2012 - 11/15/2012 (-8.42%) [42 Days]
> 03/27/2012 - 06/01/2012 (-9.44%) [47 Days]
> 07/08/2011 - 08/19/2011 (-15.96%) [31 Days]
> 05/02/2011 - 06/17/2011 (-7.59%) [34 Days]
> 02/22/2011 - 03/16/2011 (-6.54%) [17 Days]
> 07/18/2000 - 10/09/2002 (-97.34%) [559 Days]
> Alec
>
>
>
> From: Brian G. Peterson <brian using braverock.com>
> Sent: Tuesday, January 8, 2019 11:17 AM
> To: Alec Schmidt; r-sig-finance using r-project.org
> Subject: Re: [R-SIG-Finance] corrections vs drawdowns
>
> Alec,
>
> I suspect that you may wish to start with setting geometric=FALSE in
> your call to findDrawdowns.
>
> Corrections are usually defined as a peak to trough difference in
> *price*, as a percentage of the peak price.
>
> So I think you do not want to compound the *returns* in calculating
> your drawdowns.
>
> Regards,
>
> Brian
>
>
> On Tue, 2019-01-08 at 16:09 +0000, Alec Schmidt wrote:
> > I tried to use the function findDrawdowns() to compile NASDAQ
> > (^IXIC)
> > corrections. For the sample starting on
> >
> > 2007-01-01, I get the following start -to-trough periods with
> > drawdowns higher than 10%
> >
> > 08/30/2018 - 12/24/2018 (-23.64%) [80 Days]
> > 07/21/2015 - 02/11/2016 (-18.24%) [143 Days]
> > 09/17/2012 - 11/15/2012 (-10.90%) [42 Days]
> > 03/27/2012 - 06/01/2012 (-12.01%) [47 Days]
> > 05/02/2011 - 10/03/2011 (-18.71%) [108 Days]
> > 11/01/2007 - 03/09/2009 (-55.63%) [339 Days]
> >
> >
> > However, if the sample starts on 2000-06-01, I get
> > 08/30/2018 - 12/24/2018 (-23.64%) [80 Days]
> > 07/21/2015 - 02/11/2016 (-18.24%) [143 Days]
> > 07/18/2000 - 10/09/2002 (-73.94%) [559 Days]
> >
> > i.e. no bear market of 2008...
> >
> > This is because ^IXIC didn't recover in 2007 from its fall from top
> > in 2000. This implies that various reports on market corrections do
> > not use the max drawdown. Is there consensus (and possibly R
> > scripts)
> > that address this problem?
> >
> > Thanks! Alec

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